The US & China Trade War: What you need to know

trade war

September 02, 2019 The US & China Trade War: What you need to know

Trade wars aren’t new. They’ve been played out throughout the annals of time. 

So why is the US-China Trade War, which seems to escalate with every passing week, any different? 

Well, that’s a tricky one to answer. The short answer is the global economy’s been on pretty shaky ground since the Global Financial Crisis.

Meaning the world’s two largest superpowers rattling their sabres is shaking what are already rocky foundations even more. 

The long answer’s a lot more complicated. There are a multitude of reasons why. While I’ll touch on the main ones, there are just too many to go into forensic detail. 

Here are the top-five takeaways you need to know about the current trade war news…

 

Why it all started in the first place

Beyond all Donald Trump’s initial rhetoric in the lead-up, the United States started introducing tariffs on most of the country’s key trade partners back in January last year. 

Why? 

Well, China is America’s largest trading partner by far. 

Trump has argued that tariffs would help to curb China’s perceived unfair trade practices and, reduce the country’s trade deficit to China. In term, strengthening the US economy.  

 

Tit-for-tat tariff numbers to date

$US550 billion

The grand total of tariffs the US has exclusively applied to imported Chinese goods

$US185 billion

The grand total of tariffs China has exclusively applied to imported American goods

 

Impact to the global market

Global stock markets have been bearing the brunt of the United States, and China’s trading blows since the US & China Trade War started.

More recently, the US stock market, for example, has shed around five percent, with the likes of Apple and other corporate behemoths with significant exposure to China losing as much if not more along the way. 

 

Impact on the Australian market

As you’d expect, Australia isn’t immune to the global markets’ reverberation to the ongoing US & China trade war.

Depending on which economist or commentator you listen to, the impact on the Australian economy has been pretty widespread.

Some say it’s contributed to our weakened housing market, and others say it’s stifling Australia’s shaky growth.

I think the consensus is that it’s certainly not helping the Australian economy. Put it this way, a whopping $A50 billion was wiped off Australian stocks at the start of August. Not pretty. 

 

Why you should care

How bad can it get? That’s the billion-dollar question, right.

With global growth pretty stymied since the Global Financial Crisis, the US & China Trade War certainly isn’t helping market confidence, that’s for sure.

The International Monetary Fund’s World Economic Outlook, which was released in April, lowered its global growth forecast for this year, highlighting that 70 percent of the global economy seeing a decline in growth.

Which, reading into it, is a bit of a worry. 

 

The other big thing to consider is that, as logic would tell you, the US & China Trade War has the potential to trigger higher prices of goods globally and in Australia.

Any company (import or export) getting hit with higher tariffs will no doubt push that cost back onto consumers.

In other words, there’s every chance that goods across a variety of sectors will become more expensive, which is no doubt already happening. 

If you’re invested in the stock market or property market and feeling a little uneasy as to the wider ramifications of the US & China Trade War, feel free to get in touch.

I’m more than happy to talk you through my thoughts as to where things and help you put together a plan. 

 

Disclaimer: all information contained within this article is of a general nature. It does not take into consideration your personal financial circumstances. Please consult a professional financial adviser (just like us ) when making a financial decision.


Michael Chew
michael@orangewealth.com.au

Hi, I'm Michael!I'm a Dad, writer and finance expert.My priority is making the most of what I have for my family and finding the balance between all of life's competing priorities.

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